BELARUS: Moody’s Upgrades Belarus’ Rating to B3 from Caa1; Outlook Remains Stable

Monday March 19 2018

On 16th March 2018, Moody’s Investors Service (“Moody’s”) upgraded the Government of Belarus’ issuer and senior unsecured ratings to B3 from Caa1. The outlook remains stable.

The upgrade of Belarus’ ratings to B3 was driven primarily by the country’s strengthening, albeit still weak, external liquidity position. The current account deficit has narrowed despite the economy’s recovery from a two-year recession, and the excessive growth in directed lending and guarantees to state-owned banks and enterprises (SOEs) has been reined in. Moreover, the government has obtained long-term funding that will help both to mitigate the risks stemming from its significant gross external borrowing requirements and to extend its external debt maturity structure.

The stable outlook on Belarus’ B3 ratings balances the country’s improved economic and fiscal outlook as well as its proven willingness to pay, against its structural external vulnerability risks and weak institutional strength.

In a related move, Moody’s raised Belarus’ long-term country ceilings to B3 from Caa1 for foreign currency bonds; to Caa1 from Caa2 for foreign currency bank deposits; and to B2 from B3 for local currency bonds and bank deposits. The short-term foreign-currency bond and deposit ceilings remain unchanged at Not Prime (NP).

Moody’s notes that these ratings are subject to change. Therefore the rating could be upgraded further due to further strengthening of the external liquidity position that would reduce the economy’s annual debt servicing requirements. Such an improvement would likely stem from structural reforms that reduce macroeconomic imbalances and support more sustainable growth.

In contrast the rating could also be downgraded if the following were to occur:

• Substantial deterioration in foreign exchange reserves or more substantial widening of external financing requirements than currently expected.
• If the government’s fiscal position was to weaken significantly or contingent liabilities rise sharply, with associated risks of spill over to the current account deficit.

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